Futures Are Holding A Downtick At Tokyo Lunch Break

At the Tokyo lunch break, JGB futures are holding a downtick, -3 compared to the settlement levels.

• There hasn’t been much in the way of domestic drivers to flag.
• According to Bloomberg, JGB futures are going into this week’s BOJ decision with the same game plan they had for Kazuo Ueda’s first two meetings as governor. That said, time is running out on this type of strategy with the BOJ considering a sharp increase to its inflation forecast for this fiscal year. This means the central bank is unlikely to sound dovish enough to satisfy bond bulls. That will be the clarion call for medium-term bears who have been waiting for a major JGBs selloff to begin. (See link)
• The Japan breakeven inflation rate for the 10-year CPI-linked bonds rose 2bp to 1.191%, an 8-year high, on Tuesday, according to Bloomberg.
• Cash JGBs are dealing mixed at the Tokyo lunch break with yield changes bounded by -1.2bp (40-year) and +0.5bp (futures-linked 7-year). The benchmark 10-year yield is 0.1bp higher at 0.464%, below BoJ's YCC limit of 0.50%.
• The 40-year zone is outperforming, showing no concession on the curve, with its yield at 1.474% ahead of today’s supply.
• The swaps curve twist steepens, pivoting at the 3-year, with rates 0.3bp lower to 2.0bp higher. Swap spreads are wider across the curve.